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As Filed with the Securities & Exchange Commission on May 13, 2004

SECURITIES & EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended March 31, 2004.

For the transition period from              to             

SEC File Number: 0-30106

PACIFIC CONTINENTAL CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

111 West 7th Avenue

Eugene, Oregon 97401

(address of Principal Executive Offices) (Zip Code)

(541) 686-8685

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate whether the Registrant is an accelerated filer (as defined by Exchange Act Rule 12b-2).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date:

Common Stock, $1.00 par value, outstanding as of April 30, 2004: 6,835,050

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PACIFIC CONTINENTAL CORPORATION

FORM 10-Q

QUARTERLY REPORT

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CONSOLIDATED INCOME STATEMENT

Amounts in $ 000’s

(Unaudited)

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Amounts in $ 000’s

(Unaudited)

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CONSOLIDATED BALANCE SHEET

Amounts in $ 000’s

(Unaudited)

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CONSOLIDATED STATEMENTS OF CASH FLOWS

Amounts in $ 000’s

(Unaudited)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A complete set of Notes to Consolidated Financial Statements is a part of the Bank’s Form 10-K filed March 16, 2004. The notes below are included because of material changes in the financial statements or to provide the reader with additional information not otherwise available. All numbers in the following notes are expressed in dollar thousands, except per share data.

1. Basis of Presentation

The accompanying interim condensed consolidated financial statements include the accounts of Pacific Continental Corporation (the “Company”), a bank holding company, and its wholly-owned subsidiary, Pacific Continental Bank (the “Bank”) and the Bank’s wholly owned subsidiaries, PCB Services Corporation (which owns and operates bank-related real estate) and PCB Loan Services Corporation (presently inactive). All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying condensed consolidated financial statements have been prepared by the Company without audit and in conformity with generally accepted accounting principles in the United States of America for interim financial information. The financial statements include all adjustments and normal accruals, which the Company considers necessary for a fair presentation of the results of operations for such interim periods. In preparing the condensed consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, as of the date of the balance sheets and income and expenses for the periods. Actual results could differ from those estimates.

The balance sheet data as of December 31, 2003 was derived from audited financial statements, but does not include all disclosures contained in the Company’s 2003 Form 10-K.

The interim condensed consolidated financial statements should be read in conjunction with the December 31, 2003 consolidated financial statements, including the notes thereto, included in the Company’s 2003 Form 10-K.

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2. Stock Option Plans

The Company applies the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock issued to Employees, in accounting for its stock option plans. Accordingly, no stock-based employee compensation expense is reflected in net income as all options were granted at an exercise price equal to the market value of the underlying common stock on the date of the grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the optional fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

3. Loans

Major classifications of loans at March 31, 2004, December 31, 2003, and March 31, 2003 are as follows:

Allowance for loan losses

The recorded investment in restructured and other impaired loans totaled $3,199 and $6,669 at March 31, 2004 and 2003, respectively. The specific valuation allowance for loan losses related to these impaired loans was approximately $687 and $362 at March 31, 2004 and 2003, respectively and is included in the ending allowances shown above. The average recorded investment in impaired loans was approximately $3,200 and $7,000 during the first quarter 2004 and 2003, respectively. Interest income recognized on restructured and impaired loans was $30 in both the first quarter 2004 and 2003, respectively.

A substantial portion of the loan portfolio is collateralized by real estate, and is, therefore, susceptible to changes in local market conditions. Management believes that the loan portfolio is diversified among industry groups. It is management’s opinion that the allowance for loan losses is adequate to absorb known and inherent risks in the loan portfolio. However, actual results may differ from estimates.

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4. Self-Insured Healthcare Plans

The Bank began self-insuring employee related healthcare benefits during 2004. The Bank limits individual and aggregate exposure through a reinsurance program. Annual expenses associated with the plan are expected to be approximately $813 with estimated maximum exposure of $985. These amounts are not materially different from the Bank’s historical healthcare insurance costs. The self-insured liability for claims and expenses is determined using actuarial estimates and historical experience. A third-party administrator is used to process claims.

Item 2. Management’s Discussion and Analysis

The following discussion contains a review of Pacific Continental Corporation and its wholly owned subsidiary Pacific Continental Bank operating results and financial condition for the first quarter of 2004. When warranted, comparisons are made to the same period in 2003 and to the previous year ended December 31, 2003. The discussion should be read in conjunction with the financial statements (unaudited) and related notes contained elsewhere in this report. The reader is assumed to have access to the Company’s Form 10-K for the previous year ended December 31, 2003, which contains additional statistics and explanations. All numbers, except per share data, are expressed in thousands of dollars.

In addition to historical information, this report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). This statement is included for the express purpose of availing Pacific Continental Corporation of the protections of the safe harbor provisions of the PSLRA. The forward-looking statements contained in this report are subject to factors, risks, and uncertainties that may cause actual results to differ materially from those projected. Important factors that might cause such material differences include, but are not limited to, those discussed in this section of the report. In addition, the following items are among the factors that could cause actual results to differ materially from the forward-looking statements in this report: general economic conditions, including their impact on capital expenditures; business conditions in the banking industry; recent world events and their impact on interest rates, businesses and customers; the regulatory environment; new legislation; heightened national security risks including acts of terrorism and potential for war; vendor quality and efficiency; employee retention factors; rapidly changing technology and evolving banking industry standards; competitive standards; competitive factors, including increased competition with community, regional, and national financial institutions; fluctuating interest rate environments; and similar matters. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of the statement. Pacific Continental Corporation undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report. Readers should carefully review the risk factors described in this and other documents we file from time to time with the Securities and Exchange Commission.

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HIGHLIGHTS

Per share data for 2003 was retroactively adjusted to reflect the 4-for-3 stock split declared during the third quarter 2003. In addition, first quarter 2003 noninterest income and noninterest expense has been reclassified to reflect a change in the Company’s method of reporting merchant bankcard processing fees to enable consistent presentation of the financial results.

The Company earned $1,724 in the first quarter 2004, a 19% increase over net income of $1,446 for the same quarter last year. The improvement in income was the result of loan and deposit growth, and marked improvement in credit quality, which resulted in a decline in the provision for loan losses. Improvement in these areas was partially offset by a decline in revenues generated from the origination of residential mortgages. These trends are expected to continue throughout 2004.

Assets and deposits at March 31, 2004 showed growth rates of 11% and 12%, respectively over March 31, 2003. Core deposits, which are defined as demand deposits, interest checking, money market account, and time deposits taken in locally, constitute 95% of March 31, 2004 outstanding deposits. Demand deposits were $123,429 or 34% of total deposits at March 31, 2004.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income is the primary source of the Company’s revenue. Net interest income is the difference between interest income derived from earnings assets, principally loans, and the interest expense associated with interest bearing liabilities, principally deposits. The volume and mix of earnings assets and funding sources, market rates of interest, demand for loans, and the availability of deposits affect net interest income.

Net interest income prior to the provision for loan loss, in the first quarter of 2004 increased $311, or 6%, over same period in 2003. This increase was the result of growth of earning assets as the net interest margin in first quarter 2004 fell from the same quarter last year. Average earning assets in the current quarter increased 12% from $352,413 in the first quarter 2003 to $396,051 in the first quarter 2004.

Net interest margin as a percentage of earning assets was 5.78% in the first quarter of 2004 compared to 6.20% in the same time period in 2003. However, the net interest margin in the current quarter declined slightly from the 5.83% net interest margin the Bank averaged for the last six months of 2003. Earning asset yields in the current quarter were 6.82% compared to 7.45% last year, a decline of 63 basis points. Cost of liabilities fell by 21 basis points during the same time period from 1.28% to 1.07%. Costs of interest-bearing liabilities have remained stable over the past nine months as the current low interest rate environment has resulted in a practical floor on rates paid for a significant portion of the Bank’s deposits.

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A detailed comparison of interest income and interest expense between first quarter 2004 and first quarter 2003 shows that interest income increased by $237. Increased volume of earning assets improved interest income by $672, which was offset by lower yields on earning assets reducing interest income by $435. Also contributing to the increase in net interest income in the first quarter 2004 was a decline in interest expense of $74 from the same quarter last year. Changes in the mix of interest-bearing liabilities reduced interest expense by $19, and lower rates on interest-bearing liabilities reduced interest expense by $55 when compared to the same quarter last year.

The Company’s outlook with respect to its net interest margin for the remainder of 2004 is stable to slightly higher when compared to the net interest margin achieved during the first quarter 2004 as a portion of the Bank’s wholesale funding matures and can be refinanced at lower rates. This outlook is predicated on an expectation that the current interest rate environment prevails through the remainder of 2004. During the next six months, $13,000 of Federal Home Loan long-term advances with an average rate of 5.10% will mature along with approximately $8,200 in national market time deposits with an average rate of 3.70%. The Company expects these maturities to improve the net interest margin by 10 to 15 basis points during the last half of 2004, which is expected to offset potential declines in loan yields.

Provision for Loan Losses

Below is a summary of the Company’s allowance for loan losses for the first three months of 2004:

The first quarter 2004 provision for loan losses was $100, compared to $600 for the same quarter last year. The larger provision for loan losses for the first quarter 2003 was based upon uncertainties related to impaired loans, internally classified loans, and anticipated foreclosures. As the year 2003 unfolded, the Bank was able to resolve the uncertainties surrounding these loans through foreclosures and sales of collateral as well as planned exits of weaker credits. The Company anticipates the provision for loan losses for the second quarter 2004 will be reduced from provisions made during the second quarter 2003.

The allowance for loan losses at March 31, 2004 was 1.40% of period end loans compared to 1.46% at both December 31, 2003 and March 31, 2003, respectively. The allowance at March 31, 2004 includes $687 in specific allowance (included in the ending allowance above) for impaired loans, which total $3,199. Impaired loans include $1,303 nonaccrual loans and one restructured and performing loan of $1,896. At December 31, 2003, the Company had $3,168 of restructured and impaired loans with a specific allowance of $628 assigned. At March 31, 2003, the Company had $6,669 of restructured and impaired loans with a specific allowance of $362 assigned.

During the first quarter 2004, the Bank continued progress with regard to certain foreclosed assets. In February 2004, the Bank sold a commercial real estate property that was carried as foreclosed assets at December 31, 2003. The sale resulted in a one-time gain of $24. At March 31, 2004, one property remained in foreclosed assets, a single-family residence valued at $371, which is presently being actively marketed.

The following table shows a summary of nonaccrual loans, loans past due 90 days or more and still accruing interest, and other real estate owned for the periods covered in this report:

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Noninterest Income

Noninterest income decreased $288 or 21% in the first quarter of 2004 when compared to the same period in 2003. First quarter 2004 noninterest income was negatively impacted by two factors: a significant slow down in the origination of residential mortgages due to higher residential mortgage rates; and a decline on gains on sales of commercial real estate loans. Noninterest income from the origination of residential mortgages declined $234 or 53% from first quarter 2003 although during the month of March 2004, originations increased as long-term interest rates temporarily fell. In addition to the decline in mortgage revenues during the first quarter 2004, the Company took no gains from the sale of commercial real estate loans. In the first quarter 2003, sales of commercial real estate loans contributed $130 in noninterest income. The reduction in income in these two areas was partially offset by increases of 8% in account service charges and other fees and a 46% increase in merchant bankcard revenues.

The Company anticipates that for the year 2004 due to continued expectation of reduced income from residential mortgage originations that noninterest income will be flat with or slightly lower than noninterest income reported for the year 2003. However, anticipated loan growth and corresponding growth in net interest income will more than offset any decline in noninterest income.

Noninterest Expense

Noninterest expense in the first quarter 2004 was $3,877, an increase of $78 or 2% over the same period in 2003. Salaries and employee benefits accounted for most of the increase, up $123 or 5% from the previous year, reflecting personnel costs for bankers added during 2003. Equipment expense and professional services also showed modest increases when compared to first quarter 2003 up 8% and 4%, respectively. Growth in these noninterest expense categories was offset by a 28% or $72 decrease in advertising expense and a $20 decline in one-time expenses related to the January 2003 opening of the KOIN Center office in Portland, Oregon.

The Company expects the growth rate of noninterest expenses to be well below anticipated asset growth. While expense growth is expected to slow in 2004, the Company anticipates increased advertising expense as the Bank’s new branding campaign is fully implemented, which includes the introduction of media advertising in the Portland market. In addition, the Company anticipates increased expenses related to compliance with Section 404 of Sarbannes-Oxley in terms of staff, software, and professional services. However, expense increases in these areas will be offset by anticipated declines in legal fees related to problem loans and in other real estate expense. For the full year 2003, approximately $520 in other real estate expense was recorded, entirely related to three motel properties, which will not recur in 2004.

LIQUIDITY

Liquidity is the term used to define the Company’s ability to meet its financial commitments. The Company maintains sufficient liquidity to ensure funds are available for both lending needs and the withdrawal of deposit funds. The Company derives liquidity primarily through core deposit growth, the maturity of investment securities, and loan payments. Core deposits include demand, interest checking, money market, savings and local time deposits. Additional liquidity is provided through sales of loans, access to national CD markets, public deposits and both secured and unsecured borrowings. Core deposits represented 95% of total deposits at March 31, 2004 compared to 88% at March 31, 2003. Historically, due to seasonal construction and economic activity and client payment of various tax obligations, the Company experiences a decline or slower growth of core deposits during the first quarter of each year. However, during the first quarter 2004, the Company experienced an $11,000 increase in core deposits from December 31, 2003, while last year during the same three month period, the Company showed a $5,000 decline in core deposits. During the quarter, the Company grew outstanding loans by $20,500. Loan growth during the quarter was funded primarily through growth in core deposits.

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The Bank has a borrowing limit with the Federal Home Loan Bank of Seattle (the “FHLB”) equal to 25% of total assets. At March 31, 2004, the borrowing line was approximately $109,000. At March 31, 2004, there was $31,000 advanced on this line. The borrowing line at the FHLB is limited to discounted pledged collateral. FHLB stock, funds on deposit with the FHLB, and loans are pledged as collateral to the FHLB. In addition to the borrowing line at the FHLB, the Bank has established unsecured overnight lines totaling $39,000 with various correspondent banks and the Federal Reserve Bank of San Francisco. At the end of the quarter, all $39,000 of the overnight lines with correspondent banks were available to the Bank. Other sources of liquidity available to the bank included $17,000 in funding available through the State of Oregon time deposit program with community banks and a portion of the Bank’s loan portfolio, which contains in excess of $24,000 in marketable government guaranteed loans.

CAPITAL RESOURCES

Capital is the shareholder’s investment in the Company. Capital grows through the retention of earnings and the issuance of new stock through the exercise of incentive options and decreases through the payment of dividends and share repurchase programs. Capital formation allows the Company to grow assets and provides flexibility in times of adversity.

Banking regulations require the Company to maintain minimum levels of capital. The Company manages its capital to maintain a “well capitalized” designation (the FDIC’s highest rating). At March 31, 2004, the Company’s total capital to risk weighted assets was 12.06%, compared to 11.47% at March 31, 2003.

The Company’s board of directors reviews its dividend considerations so that cash dividends, when and if declared by the Company, would typically be paid in mid-March, June, September, and December of each year. On February 11, 2004, the Company declared its first quarter dividend of $0.08 per share paid on March 15, 2004 to shareholders of record on February 27, 2003. The Company expects to maintain the $0.08 per share dividend per quarter during 2004, which would result in an annual dividend of $0.32 per 0share, which would equate to a 17% increase over the prior year, when adjusted for the 4-for-3 stock split declared in September 2003.

The Company projects that earnings retention and existing capital will be sufficient to fund anticipated asset growth and shareholder dividends, while maintaining a well-capitalized designation from the FDIC.

Item 3. Quantitative and Qualitative Disclosures on Market Risk

There has been no material change in the Bank’s exposure to market risk. Readers are referred to the Bank’s Form 10-K and the Annual Report to Shareholders for the period ending December 31, 2003, for specific discussion.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-14(c) and 15d-14(c)) as of a date within 90 days before the filing date of this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s current disclosure controls and procedures are effective and timely, providing them with material information relating to the Company required to be disclosed in the reports we file or submit under the Exchange Act.

Changes in Internal Controls

There have not been any significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. We are not aware of any significant deficiencies or material weaknesses, therefore no corrective actions were taken.

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Item 6. Exhibits and Reports on Form 8-K

A Report on Form 8-K was filed by Pacific Continental Corporation on January 21, 2004 that announced earnings for the fourth quarter and year-end December 31, 2003.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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